Accounting chapter 3

prepaid rent appears in the -balance sheet because its a liability -income statement because its an asset -balance sheet because it is an asset

-balance sheet because it is an asset

Which of the following line items appear in an income statement? (2) -Supplies -Sales Revenue -Salaries Expense -Cash

Sales Revenue Salaries Expense

adjusted trial balance

a list of all accounts and their balances at a particular date, after we have updated account balances for adjusting entires

current liabilities

liabilities due within the next year

the adjusting entry for a deferred revenue includes a debit to a ____ account and a credit to a _____ account

liability, revenue

transactions that do not involve revenues or expenses and transactions that result in revenues and expenses being recorded at the same time as the cash flows -require adjusting entries if the effect is material -always require adjusting entries at the financial statement date -never require adjusting entries

never require adjusting entries

which of the following are reported as stockholder's equity on a classified balance sheet? -dividends -retained earnings -notes payable -common stock

-common stock -retained earnings

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through -the preparation of an unadjusted trial balance -the posting of adjusted entries -conversion to cash-basis -posting of non-cash transactions occurring during the year

-posting of adjusting entries

adjusting entries are unnecessary when...

-transactions dont involve revenue or expense activities -transactions that result in revenues or expenses being recorded at the same time as the cash flow

identify all transactions that do not require adjusting entries -transactions that result in revenues or expenses being recorded in a different period as the cash flow -transactions that result in revenues or expenses being recorded at the same time as the cash flow -transactions that involve revenue or expense activities -transactions that do not involve revenue or expense activities -transactions that involve depreciation

-transactions that result in revenues or expenses being recorded at the same time as the cash flow -transactions that do not involve revenue or expense activities

identify the entries needed for the closing process -credit each revenue, debit each expense, and record the difference in retained earnings -credit dividends declared and debit retained earnings -debit each revenue, credit each expense, and record the difference in retained earnings -debit dividends declared and credit retained earnings

B,C

interest, expense

___ is defined as the "cost of borrowing money". Since the account represents all the cost incurred during the period on borrowed money, it is classified as an _____ account

adjusting entries is

an important part of accrual-basis accounting. They help to update the balances of assets, liabilities, revenues, and expenses at the end of the accounting period for transactions that have occurred but have not yet been recorded

current assets

assets that will be used up or converted to cash within the next year

If an adjusting entry's credit is to a liability account, then the debit must be to -expense -revenue -prepaid expense -cash expense

expense

matching principle

expenses are reported in the same period as the revenues they help to generate

Classified balance sheet

groups assets and liabilities into current and long-term categories

a primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded

cause-and-effect relationship between

revenue and expense recognition

cash-basis accounting

revenues are recorded at the time cash is received expenses are recorded at the time cash is spent

revenue recognition principle

states that we record revenue in the period in which we provide goods and services to customers, not necessarily when cash is received

prepaid expenses

the costs of assets acquired in one period that will be recorded as an expense in a future period

accruals

the opposite of prepayments *with accruals, the cash flow occurs after either the expense or the revenue is recorded

revenue

the price made from selling a good or service

depreciation

the process of allocating the cost of an asset, such as equipment, to expense over the asset's useful life

closing entries

transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the Retained Earnings account -all revenue accounts have credit balances. To transfer these balances to the Retained Earnings account, we debit each of these revenue accounts for its balance and credit Retained Earnings for the total -similarly, all expense and dividend accounts have debit balances. so, we credit each of these accounts for its balance and debit Retained Earnings for the total

Accrual-basis accounting

we record revenues when we provide goods and services to customers, and we record expenses with related revenues

accrued expense

when a company has a cost that helps to produce revenue but hasn't yet paid cash for that cost, it still should record the cost as an expense and also a liability for the amount owed *the adjusting entry for an accrued expense always includes a debit to an expense account(increase an expense) and a credit to a liability account(increase a liability)

accrued revenue

when a company provides products or services to customers but hasn't yet received cash, it should record the revenue and an asset for the amount expected to be received

deferred revenues

when a company receives cash in advance from a customer for products or services to be provided in the future *the adjusting entry for a deferred revenue always includes a debit to a liability account(decrease a liability) and a credit to a revenue account(increase a revenue)